You may think that having excess inventory on hand is helpful since it allows you, the merchant, to respond to client orders more quickly. That, however, is really a myth. Excess inventory can eat away at your profits and promote wastage. This is particularly hazardous for sectors that deal with items with a short shelf life.
So, what are your options for dealing with this issue? This article will explain what excess inventory is and what its drawbacks are in order to assist your firm optimise revenues more efficiently.
What is excess inventory?
Any product in your existing inventory that is nearing the end of its shelf life and is not expected to be sold is considered excess or surplus inventory. The problem occurs when you don’t have a precise estimate of how much merchandise you regularly sell or when demand shifts unexpectedly. This can result in a number of financial and operational difficulties.
Disadvantages of holding excess inventory
Excess inventory causes a slew of problems, including storage, wastage and extra costs. However, there are major drawbacks to having too much inventory:
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Causes loss of revenue
Excess inventory loses value as demand for the product declines, and it takes the shelf space away from a fresher product with a better profit margin. Furthermore, the costs of storing surplus goods, such as warehousing, taxes and shipping insurance reduce profitability. Excess goods with an expiration date entail an even greater loss because these items are not sustainable after their date of use has passed and must be disposed of completely.
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Results in greater storage costs
There are charges associated with storing your excess stock. Simply put, anything you don’t sell is money taken from your pocket. Plus, you must additionally compensate your employees for handling the merchandise and potentially performing manual inventory. This raises the overall expenditures, especially prime charges, reducing your profit margin.
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Leads to poor goods quality
Excess inventory on warehouse shelves has the potential to degrade and expire. As a result, businesses frequently offer perishable or sub-standard products at reduced costs in order to prevent wastage and thus lose their value. Discounting stock or getting rid of it all together can have a big influence on your company’s bottom line.
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Stifles cash flow
A company purchases inventory with the intention of reselling it for a profit, converting the stock into cash that may be used to cover the company’s day-to-day expenditures. Excess inventory decreases that cash flow by preventing money from being spent elsewhere and holding it the form of your goods in the warehouse.
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Reduces your business’s flexibility
Keeping too much stock on hand limits your company’s capacity to respond to changes in client demand. A lean, appropriate inventory level allows the organisation to respond quickly to market changes.
Purchasing only the things you know you’ll utilise is the best strategy to cut and prevent excess inventory. This can be accomplished by forming a partnership with a global logistics company such as DHL Express. This leading worldwide courier service provider’s in-house experts take care of your inventory by examining your past data to determine seasonal trends and identify your best-selling products.
DHL can also assist you to split your inventory into healthy, surplus and obsolete goods, as well as present a list of improvement measures. For more information, contact the certified international specialists today!
